Global 'Human Crisis' Decried
World Bank Chief's Plea Seen as Attack on IMF Focus on Money
By Paul Blustein
Washington Post Staff Writer
Wednesday, October 7, 1998; Page C10
The president of the World Bank delivered an impassioned call yesterday
for devoting more attention and money to the "human crisis" stemming from
the turmoil besetting developing countries, warning that an excessive focus
on "sound budgets" and "technocratic fixes" would lead to even more
economic instability in the long run.
James D. Wolfensohn's remarks, which came in a speech to the annual
meeting of the World Bank and its sister institution, the International
Monetary Fund, constituted thinly veiled criticism of the IMF. The criticism
highlighted a growing rift between the two institutions that stems from
view of many bank staffers, notably chief economist Joseph Stiglitz, that
the fund has mishandled the global crisis by requiring financially strapped
countries to adopt painful austerity measures.
Although "appropriate" economic policies are necessary, Wolfensohn said,
"we have learned that when we ask governments to take the painful steps
to put their economies in order we can create enormous tension."
"When we redress budget imbalances," he continued, "we must recognize
that programs to keep children in school may be lost, that programs to
ensure health care for the poorest may be lost, that small and medium
enterprises, which provide income to their owners and employment to
many, may be starved of credit, and fail."
The Australian-born Wolfensohn cited "dark, searing images of
desperation, hopelessness and decline" that he had seen as a result of
crisis: "The mother in Mindanao [the Philippines], pulling her child out
school, haunted by the fear that he will never return. The family in Korea,
with a mid-size scrap metal business, made destitute through lack of credit.
The father in Jakarta, paying a money lender three times in interest what
can make that day, falling deeper and deeper into debt."
At the core of his argument was a plea that the effort to address the crisis
"must go beyond financial stabilization" -- the IMF's prime concern --
anti-poverty activities of the sort the bank specializes in, to counter
enormous increase in human misery in crisis-stricken countries that
threatens to spawn social and political unrest.
And he issued his strongest warning yet that the bank's capital shouldn't
overused to help bolster the IMF's multibillion-dollar bailouts, fretting
"there will be less to lend for our long-term development mission."
The friction between the fund and the bank has become a source of
frustration for the Clinton administration, which fears that a public spat
could undermine efforts to resolve the crisis. Some Wolfensohn critics
contend that his pique stems from envy of the IMF's crisis management
role, which has overshadowed the bank. On Monday, Treasury Secretary
Robert E. Rubin admonished the fund and the bank to "put aside
institutional rivalries unbefitting public institutions with the same
In a bow toward harmony, Wolfensohn said he would "like to pay tribute
to the work that the fund has done in a year that has been characterized
great turmoil," and he referred to Michel Camdessus, the IMF's managing
director, as "my colleague and friend."
But in a barbed comment, he warned against letting development needs go
unmet, and failing to counter an alarming rise in poverty, while the
international community devotes its energies to the creation of a "new
architecture" for international finance -- that is, a new system for regulating
the vast flows of capital that have both helped and destabilized many
countries. This is -- a high priority for both the IMF and the Clinton
"We may build a new international financial architecture. But it will be
house built on sand," Wolfensohn declared, if it is done without adequate
attention to meeting social needs.
Since the global financial crisis erupted in Thailand in July 1997, the
-- traditionally a lender for projects to promote education, health, nutrition
and infrastructure-building -- has made about two-fifths of its loans for
crisis-fighting purposes to countries such as South Korea and Indonesia.
With the IMF's coffers badly depleted, the United States and other major
industrialized countries recently called on the bank to provide even more
emergency loans -- and although Wolfensohn has agreed, he made clear
yesterday that he has strong reservations.
"There are trade-offs that we cannot ignore," he said. "New demands
made on us will require a very careful assessment of possible needs for
new resources" -- a hint that if the bank is pushed too far it will ask
shareholder countries to provide more capital, which would be politically
unpopular on Capitol Hill.
Camdessus, who also addressed the IMF-World Bank meetings, used
some of his bleakest rhetoric to date in assessing the crisis. "We are
speaking not just of countries in crisis, but of a system in crisis, a
not yet sufficiently adapted to the opportunities and risks of globalization,"
He acknowledged: "We did not anticipate the strength of this virus, which
has struck far and wide -- for instance, attacking Latin America because
Russia ran into trouble."